Homeowners

Inherited a Home? Here's What to Do Next

Congratulations, you’ve inherited a home. Now what?

Having someone leave you their property may seem like you’ve won the jackpot. But in some cases, it may be more of a headache.

Before you break out the champagne, it’s helpful to understand the situation.

A quick title search can tell you if there is a mortgage, back taxes, and any liens or judgments (aka debts) on the property. These must be paid. You may also need to buy out other heirs, making a “free” home suddenly more expensive.

That’s why it’s important to speak with an attorney to figure out your options.

How much will it cost to inherit a home?

The exact costs of inheriting a property will depend on the circumstances.

There may be a transfer tax charged once the ownership of the property changes. This depends on the state and the details of the inheritance.

For example, if there is still a mortgage on the home, the heirs may owe the tax based on the unpaid balance on the loan, according to real estate attorney Andy Cohen of Gerstein Grayson & Cohen in Mt. Laurel, N.J.

You will also want to keep making the mortgage payments so that the loan doesn’t become delinquent.

You will want to figure out how much you will owe in property taxes each year. And you may want to compare homeowners insurance providers to ensure the home remains protected.

It may also be worthwhile to get a home inspection to see what upkeep and repairs will look like in the future.

And if there are multiple heirs for the property, you will need to come to a shared ownership arrangement, an agreement to buy out their shares, or you can sell the home and divvy up the proceeds.

What to do if you are gifted a home

If the owner of the home is alive and giving you the gift of their home, your situation may be the easiest to navigate. It’s even better if the original owner has been on top of taxes and mortgage payments.

“[In] most cases, it is an agreement between family members,” said New American Funding Sales Manager Amber Ernst. She’s based in Bettendorf, Iowa.

If the mortgage on the home is paid off, you may be able to make an appointment with a title company to have the deed put in your name. 

“Depending on where you live, it could be as simple as transferring the deed to you,” said Cohen.

What to do if you inherit a home with a mortgage

If you inherit a home that the deceased owner hasn’t fully paid off, you will need to decide whether to pay off the rest of the mortgage, assume the loan, or sell the property.

By paying the mortgage, you are picking up the tab. However, you are not technically the owner until the mortgage is satisfied or transferred into your name.

Assume the loan will require a credit check and income verification, just like if you were to buy a home on your own.

“Before you take over a mortgage or apply for a new one, the [lender] will make sure that you would be creditworthy,” said Ernst.

This is why many people will simply make the payments without immediately worrying about transferring the title into their name.

You may also be able to pay debts off with an existing life insurance policy for the deceased (if you’re entitled to the money). You may also want to consider taking out a mortgage for the amount that’s owed on the home.

Inheriting a home with a reverse mortgage

In the case of a reverse mortgage, the money the homeowner took out of their home for the reverse loan becomes due when the owner passes away.

(A reverse mortgage allows homeowners 62 years old and up to tap into their equity.)

If you inherit the home, you will need to pay off that amount, refinance and pay off the balance, sell the property, or turn it over to the lender so that you don’t owe any money on it.

In the case of an owner who’s alive (or the mortgage company doesn’t know they’ve passed), hopefully they’ve discussed the reverse mortgage with you so there’s no surprise.

What to expect if you inherit a home after the previous owner passed away

If the owner of the property has passed away and their name was on the deed, the beneficiaries need to go through probate court before they become the official owners of the home.

If there was a will, the probate judge would choose someone to become the executor of the estate. The executor will manage and make decisions regarding the property.

If the owner didn’t leave behind a will, the judge would pick an administrator to do the same job as the executor.

Those appointed individuals can then transfer the home to the heirs or sell it. Once the deed is transferred to you, it becomes legally yours. 

No matter the scenario, Ernst recommended consulting an attorney.

“An attorney can help you in case things get complicated,” Ernst said. “They can definitely help to draft your purchase agreement.”

Amber Ernst NMLS # 406037